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Chinese overseas M&A investment surged 148% in 2016: Hurun report
Chinese companies’ cross-border mergers and acquisition (M&A) deals surged both in number and amount in 2016, with private businesses and asset management companies outrunning SOEs to represent the biggest share of investors going global, according to a report released jointly by the Hurun Report and consulting agency DealGlobe on Tuesday.
 
In 2016, Chinese companies announced 438 overseas direct investment deals, an increase of 21 percent over 363 in 2015; meanwhile, with a focus on manufacturing, financial services and energy industries, the total transaction amount surged 148 percent annually to $215.8 billion, according to the report.
 
Private companies have risen to prominence in outbound M&A activities. The year 2016 witnessed Chinese private enterprises accomplish three times more deals than the previous year. The total transaction amount of private businesses also exceeded that of their state-owned counterparts.
 
In the first quarter of 2017, 83 percent of cross-border M&A deals were made by private companies. According to Rupert Hoogewerf, chairman and chief researcher of the Hurun Report, the number of outbound M&A deals conducted by private companies had hit a record high while performance of state-owned companies hit a record low.
 
The boom is ascribed to Chinese companies’ requirement to realize industrial upgrade and the Belt and Road Initiative that has been encouraging domestic companies to export their technology and overcapacity. Meanwhile, tightening supervision of outbound investment activities and rising break-up fee are dampening the enthusiasm.
 
It was previously reported by domestic media that the break-up fee used to cost 2 percent of the total trading value although the rate has risen to above 5 percent these years.
 
Tightening regulations are also hindering many potential Chinese buyers. It is reported by china.org.cn that deals involving a large amount of transaction value would usually face tight supervision and more approval obstacles. The Hurun report showed that most of the top 20 transactions made in 2016 are yet to be delivered. At present, cross-border M&A deals involving over $1 billion are all subject to special reviews, and it is predicted Chinese buyers would avoid big deals in the foreseeable future.
 
It is obvious that top destinations for Chinese investment are developed economies represented by the US and European countries, with the US taking the first place. According to Hoogewerf, Chinese entrepreneurs began to put a focus on global-level strategies since 2012, and with many years’ maturation, many businesses have evolved into strong players that are capable of global layouts.
 
Hong Kong has taken the second place as the most popular destination for Chinese outbound investment. Hoogewerf believes that the city, with its unique political and geographical position, has become a passageway for Chinese businesses to go global. Many companies usually set up special purpose shell (SPV) companies in the city, before they conduct overseas M&A deals.
 
Recent years have seen a shift in hot M&A areas. Although China used to concentrate on resources and energy industries, the attention of Chinese buyers has now turned to areas like manufacturing, financial services, energy, computer, entertainment and culture, consumption, automobile, semiconductor, media and medical health. 
 
The HNA Group has become the most aggressive dealmaker in China over the past year. The parent company of Hainan Airlines had splashed $40bn on four cross-border deals. It is reported by the Financial Times, the company has skillfully leveraged existing assets to fund the purchase of new ones to transform itself into a sprawling, privately held international conglomerate. Meanwhile, its heavy use of debt has drawn concern from Standard & Poor’s and some overseas bankers.

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